The Impact of Industry and Foreign Trade on Economic Growth in China. An Inter-Sector Econometric Model,

Econometrics. Faculty of Economics. Santiago de Compostela. Spain in collaboration with Euro-American Association of Economic Development Studies Working Paper Series Economic Development. No. 76 2004 The Impact of Industry and Foreign Trade on Economic Growth in China. An Inter-Sector Econometric Model, 1976-2002. GUISAN, M.Carmen eccgs@usc.es EXPOSITO, Pilar piliexpo@lugo.usc.es University of Santiago de Compostela (Spain) First published 18 May 2004. Provisional version. http://www.usc.es/economet/welcomei.htm 1.- Introduction The purpose of this paper is to present the estimation of a dynamic econometric model which shows the important impact than industrial production and foreign trade have on economic growth. The increase of real Gdp per inhabitant depends on a positive difference between the rates of real change between Gross Domestic Product and Population, being usually the educational level of population the main factor influencing that positive differences, according to several studies. The good performance of the Chinese economy during the last decades of the 20 th century is a good example for other Asian countries and for other areas of the world as well, and also an interesting experience to learn from that in order to pursue the target of increase real income per inhabitant in China. Since 1980 the Chinese government has asked for advise to very distinguished members of the Economics research profession, as Chow(2001) remember in an interesting article. He says: The importance of econometrics was well recognized in mainland China ever since the establishment of diplomatic relations with the United States in 1979. In the summer of 1980 a group of seven econometricians led by Lawrence Klein, including T.W. Anderson, Albert Ando, Gregory Chow, Chen Hsiao, Lawrence Lau and Vincent So, was invited by Xu Dixin, then Vice President of the Chinese Academy of Social Science, to lecture on econometrics in Beijing to about one hundred researchers selected from the whole country. Econometric model building has since taken root and econometric analysis has been applied for economic policy analysis. It is very interesting to see how the experience of other countries can help to design good economic policies for emerging economies, what it is a good example for international cooperation. Some of the most important econometric models of the Chinese economy are presented in the interesting book by Klein and Ichimura(2000), which present models produced both inside 1

and outside China, and we will present a more detailed reference to that interesting book in the final version of this paper. In this paper we focus on the important role of manufacturing and imports to increase real income per inhabitant and non-agrarian employment. Some researchers specialized in economic growth analyse the export-led growth in many countries and insist upon the importance of openness to increase real Gdp. Often this type of beneficial effects seem very clear but it does not always happen that way. The important question in our view is not only to increase the degree of openness due in order to increase foreign demand but also to relate foreign trade with supply side having into account the general positive effects of imports on the domestic growth of industry, building and services. Although a part of imports may happen to had a substitution effect, usually most imports are really complementary goods which contribute to foster and increase the internal production of goods and services. Thus we deem very important to have into account the positive impact of imports on the development of industry and services and for that purpose with present some econometric models of inter-sector relationships in section 3. Before we present in section 2 a general view of economic growth in China during the second half of the 20 th century, according to comparisons performed in Purchasing Power Parities, PPCs, based on data by Maddison and other approaches to measure real Gdp. Some discrepancies among several sources remain but in spite of that data let us know interesting relations about the main facts of economic development in China. In sections 4 and 5 we present some complementary analysis of demography, expenditure on education, and foreign trade of China in comparison with other countries and areas, and we insist upon the convenience to foster education and international cooperation for development in China and in other areas. Regarding foreign trade it is remarkable to mention that the level of exports per inhabitant in China and other important countries of Asia, such as India, is yet very low and that it is important to foster international cooperation for development studying the problems that can arise for many small countries when the biggest ones of the world reach higher levels of exports. 2.- Economic growth China during the period 1950-2000 According to Ruoen and Kai(1995) it is important to use the purchasing power parity approach formulated by the UN International Comparison Program (ICP) because the methods based on exchange rates usually lead to important underestimation of the real values. For the year 1991 they found important differences with an estimation of only $ 370 in Gdp per inhabitant of China according to the World Bank Atlas approach and a value between $ 1227 and $1663 in comparisons following PPPs. Graphs 1 to 5 present the rates of growth of real GDP base on four interesting sources: 1) Rates published in Statistical Yearbook China, SYCN, for GDP. 2) Maddison(2001). 3) Rates calculated by us from total Value-Added, at constant prices income approach, as the sum of Valued-Added by sector at current prices of China published by IER(1997), deflacted by the index of prices of private consumption, IPPC, from SYCN. 4) Rates by sector at constant price production approach according to SYCN, based on sectoral deflactors. 2

Graphs 1 present a comparison of the rates of growth based on sources 1 and 2, while graphs 2 present a comparison between sources 1 and 3. Graph 1. Rates of annual growth of real GDP according to sources 1 (SYCN) and 2 (Maddison) 16 14 12 Rate1 10 8 6 Rate2 4 2 78 80 82 84 86 88 90 92 94 96 98 00 02 Graph 2. Rates of growth of real GDP according to sources 1 (SYCN) and 3 (IER deflacted by IPPC) 20 15 10 Rate1 5 0 Rate3-5 78 80 82 84 86 88 90 92 94 96 98 00 02 We notice a greater similarity between sources 1 and 3 than between 1 and 2, with the exception for year 1989 when the index of prices of private consumption could be in some degree overestimated. Besides we compare the rates of growth of real Value-Added by sector for Agriculture, Industry (including Building) and Services, according to sources 3 and 4. 3

Graphs 3 to 5 show the differences in rates by sector from criteria 3 and 4, where the blue line represents data from source 3 and the red line corresponds to data from source 4. Source 3 measures real Value-Added according to the income approach while source 4 corresponds to the production approach. Both approaches present generally a high degree of similarities although with some important discrepancies in particular years. 20 Graph 3. Exponential rates of real GDP of Agriculture 15 Rate3 10 5 Rate4 0-5 -10 78 80 82 84 86 88 90 92 94 96 98 00 02 Graph 4. Rates of annual growth of real GDP of Industry 25 20 15 Rate4 10 5 0 Rate3-5 -10 78 80 82 84 86 88 90 92 94 96 98 00 02 30 Graph 5. Exponential rates of real GDP of Services Rate3 20 10 Rate4 0-10 78 80 82 84 86 88 90 92 94 96 98 00 02 4

Graph 6 shows the substantial increase of real Gdp in China, Japan, India and Indonesia during the period 1950-99, according to the data by Maddison, and graph 7 shows the evolution of China according to approaches 2 and 3 together with USA, Western Europe and India. 5000 Graph 6. Evolution of real Gdp in the largest Asian countries (billions of dollars at 1990 prices) 4000 China 3000 2000 Japan In d ia 1000 Indonesia 0 50 55 60 65 70 75 80 85 90 95 Source: Guisan and Exposito(2003) We can see the substantial growth of China since 1977, particularly from 1988. Although India experienced an important growth in comparison with other areas, it was relatively moderate in comparison with China. Graph 7. Real Gdp of China and other countries (Billion US dollars at 1990 PPPs) 9000 8000 7000 6000 5000 4000 3000 2000 USA WEU Cn3 Cn2 Jp In 1000 0 50 55 60 65 70 75 80 85 90 95 00 5

The subsequent graphs 8 and 9 show the evolution of real Gdp and Population for Asia during the period 1950-98, as well as the share of these variables of the corresponding world values. Although Asian countries underwent a significant increase in total production during the final decades of the century, the problem is that many of them also had excessively high rates of population growth, a situation which makes the eradication of poverty and the increase of real Gdp per inhabitant difficult. Graph 8. Evolution of real GDP in Asia, Billion US$90 16000.40 12000 8000 4000 Ratio Asia/World Asian real Gdp.35.30.25.20 0 50 55 60 65 70 75 80 85 90 95.15 Source: Guisan and Exposito(2003) Graph 9. Evolution of Population in Asia (millions of inhabitants) 3600 Ratio Asia/World 3200 2800 2400 Asian Population 2000 1600 1200 50 55 60 65 70 75 80 85 90 95.60.59.58.57.56.55.54 Source: Guisan and Exposito(2003) 6

During the second half of the 20th century the share of Asia in world population terms increased from 55% to nearly 60% while real Gdp also increased its share from 20% of world Gdp to almost 40%. In that period China experienced an increase of the share on Gdp and a slight decrease on the share of population. Finally graph 10 presents the evolution of real Value-Added by sector in China according to approach 3, in billion dollars at prices and Purchasing Power Parities of year 2000. 3000 Graph 10. Real Value by Sector in China (Billion US dollars at 2000 prices, PPPs) 2500 Ind ustry 2000 1500 Services 1000 500 Agriculture 0 78 80 82 84 86 88 90 92 94 96 98 00 3.- Econometric Model for impact of Industry and Foreign Trade Some econometric models cited in the bibliography, as Martin et al(2000) analyses the positive impact of imports on production through the spill over effect of technology in internal productivity and production, and other effects of foreign trade on economic growth. The great importance of the increase of complementary imports on internal production usually is not highlighted according its relevant role in the explanation of real Gdp. Many macro-econometric models mainly consider the export-led impact on demand side and a subsequent increase in imports due to growth of Gross Domestic Product. Really in many countries, specially in developing ones, we find that the import-led impact on supply side to be very important because the increase of imports of many complementary goods and services is needed to increase internal production. Exports are important because they are the main source to finance imports. Its demand side effect could be substituted by an increase in internal demand but that option should not let to increase the capacity to imports. We have estimated econometric models in several OECD countries, such as the USA, Japan, France, Spain, and Ireland, and in some non-oecd countries, such as Argentina, 7

Brazil, Mexico and China, and we have found that the increase in real Imports usually shows an important positive impact both on manufacturing and services, because the imported goods are in major degree complementary of internal production and at a lesser extent they have some substitution effects. Here we present some econometric relationships between real value-added in services: Q3CN according to the source of data named approach 3 in section 2, and QS90CN according to the source of data named approach 4. Q3CN is expressed in billion dollars at 2000 prices and PPPs and QS90CN in billion dollars at 1990 prices and PPPs. Equation 1. Real value added of Services, approach 3, Q3CN Dependent Variable: Q3CN Method: Least Squares Sample(adjusted): 1979 2002 Included observations: 24 after adjusting endpoints Variable Coefficient Std. Error t-statistic Prob. D(Q1CN) 0.111573 0.230579 0.483882 0.6340 D(Q2CN) 0.278338 0.151083 1.842285 0.0811 D(IMP00CNPP) 1.403538 0.870542 1.612258 0.1234 D(EXP00CNPP) -0.034645 1.114838-0.031076 0.9755 Q3CN(-1) 1.028796 0.024137 42.62321 0.0000 R-squared 0.996969 Mean dependent var 866.4366 Adjusted R-squared 0.996331 S.D. dependent var 533.0612 S.E. of regression 32.28904 Akaike info criterion 9.970384 Sum squared resid 19809.05 Schwarz criterion 10.21581 Log likelihood -114.6446 Durbin-Watson stat 1.319559 Equation 2. Real value added of Services, approach 4, QS90CN Dependent Variable: QS90CN Method: Least Squares Sample(adjusted): 1979 2002 Included observations: 24 after adjusting endpoints Variable Coefficien t Std. Error t-statistic Prob. D(QA90CN) 0.561383 0.240885 2.330505 0.0310 D(QI90CN) 0.280485 0.090982 3.082875 0.0061 D(IMP90CN) 0.369223 0.492057 0.750367 0.4622 D(EXP90CN) -0.303982 0.498635-0.609629 0.5493 QS90CN(-1) 1.029552 0.015035 68.47771 0.0000 R-squared 0.999234 Mean dependent var 1137.071 Adjusted R-squared 0.999073 S.D. dependent var 695.7370 S.E. of regression 21.18517 Akaike info criterion 9.127532 Sum squared resid 8527.421 Schwarz criterion 9.372960 Log likelihood -104.5304 Durbin-Watson stat 1.038877 8

In equations 1 and 2 real value added of Services is related with the internal production of Agriculture and Industry, the real value of imports and exports and the lagged value of the demand variable, through a dynamic relatioship where the dependent variable and its lagged value are in levels and the other variables are in first differences. In equation 1 foreign trade variables are expressed in purchasing power and in equation 2 according to exchange rates. Although there is some degree of multicollinearity, these estimations show the positive impact of imports and real value added of Agriculture and Industry on the internal production of Services. Regarding exports we find that the final effect is positive, because the negative coefficient of this variable is lower in absolute value than the positive coefficient of imports. As exports are needed to increase imports, the final effect of exports is positive. These results agree with those that we found in the estimations of other OECD and non-oecd countries. Besides the positive effect on Services, Imports have also a positive effect on Industry, so the final effect on real Gdp is quite relevant and positive. Equation 3 shows the relation of Industry with some demand and supply side variables: From the demand side the increase in Q3CN(-1) (previous year internal Services) and EXP90CN(-1) (previous year external demand). From the supply side the increase in the production of Agriculture and the increase in Imports. The model present some degree of autocorrelation probably due to the effects of some missing explanatory variables. We shall analyse with more detail this question. Equation 3. Real value added of Industry, Q2CN. Supply and Demand sides. Dependent Variable: Q2CN Method: Least Squares Sample(adjusted): 1981 2000 Included observations: 20 after adjusting endpoints Convergence achieved after 8 iterations Variable Coefficient Std. Error t-statistic Prob. D(Q1CN) 0.424218 0.372788 1.137959 0.2742 D(Q3CN(-1)) 0.411456 0.316847 1.298596 0.2151 D(IMP00CN) 1.268333 0.659216 1.924003 0.0749 D(EXP00CN(-1)) 0.719816 0.918447 0.783732 0.4463 Q2CN(-1) 1.055844 0.024467 43.15343 0.0000 AR(1) 0.585777 0.234441 2.498617 0.0255 R-squared 0.996847 Mean dependent var 1314.569 Adjusted R-squared 0.995721 S.D. dependent var 746.2337 S.E. of regression 48.81290 Akaike info criterion 10.85719 Sum squared resid 33357.78 Schwarz criterion 11.15591 Log likelihood -102.5719 Durbin-Watson stat 1.634124 Inverted AR Roots.59 The positive impact of Imports from the supply side seems to be higher and more significant than the direct positive impact of Exports from the demand side. 9

Equation 4 presents a similar relationship more simplified, without the demand side effects. Equation 4. Real value added of Industry, Q2CN. Supply side. Dependent Variable: Q2CN Method: Least Squares Sample(adjusted): 1980 2000 Included observations: 21 after adjusting endpoints Convergence achieved after 9 iterations Variable Coefficient Std. Error t-statistic Prob. D(Q1CN) 0.268661 0.339611 0.791082 0.4398 D(IMP00CN) 1.581133 0.612464 2.581595 0.0194 Q2CN(-1) 1.076707 0.020982 51.31526 0.0000 AR(1) 0.610895 0.213587 2.860166 0.0108 R-squared 0.996515 Mean dependent var 1274.725 Adjusted R-squared 0.995900 S.D. dependent var 749.9066 S.E. of regression 48.01984 Akaike info criterion 10.75075 Sum squared resid 39200.39 Schwarz criterion 10.94971 Log likelihood -108.8829 Durbin-Watson stat 1.553864 Inverted AR Roots.61 We think that usually, like in the case of China, the supply side effects on Industry are more important than the demand side ones, because generally it is easier to increase demand to meet supply and to increase supply to meet demand. The estimated equations show generally a coefficient higher than unity for the lagged value of the dependent variable, in many cases significantly higher than one. This result show that the chosen functional form of dynamic models mixed (with levels for the endogenous variable and first differences for the exogenous ones) perform usually better than models with all variables in levels or in first differences. 4.- Production by sector and foreign trade in China and Asia-Pacific, 1980-98. The following tables present the evolution of real production by sector and inhabitant in 6 large areas of Asia and the South Pacific. Euro-Asian countries like Russia, Turkey and Trans-Caucasian countries of Armenia, Azerbaijan and Georgia are not included here but in the report on European and Eurasian countries of Guisan and Aguayo(2002) as these countries have decided to form part of the Council of Europe. Besides these, this report also excludes the five North Central Asian countries that belonged to the former USSR and which have decided, in the year 2000, to become members of the Euro-Asian Economic Community together with Russia and Belarus. They are Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan. They have been included in the above mentioned study. 10

Data is expressed at 1999 prices and purchasing power parities, based on our own calculations from international data published by World Bank, United Nations, and other institutions. The countries and territories with more than one million people included in the 6 areas of Asia and South Pacific during the period 1980-99 are the following ones: 1. Western Asia or Near East: Bahrain, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestinian Territories, Saudi Arabia, Syria, United Arab Emirates and Yemen. 2. South Central Asia or Middle East: Afghanistan, Iran, and Pakistan. 3. India and South: Bangladesh, Bhutan, India, Nepal and Sri Lanka. 4. China, Japan and North East: China PR, Hong-Kong (China), Japan, North Korea, Mongolia, Taiwan and South Korea. 5. Indochina or South East: Cambodia, Lao, Myanmar, Thailand and Vietnam. 6. South Pacific: Australia, Indonesia, Malaysia, New Zealand, Papua-New Guinea, Philippines and Singapore. This classification in large areas takes into account population size, geographical criteria and other international criteria. Population size varies between 100 and 400 million people in 4 out of the 6 areas, and is higher than 1000 million in the cases of the largest areas of India and South and China and North East. Some countries with more than one million inhabitants are not included in the tables by country because of problems of unavailability of data from the international sources utilized. Furthermore, there are small countries and territories with less than one million inhabitants in 1999, such as the emirate of Qatar in West Asia, the Maldives in South Asia, Macao(China) in North East Asia, and several more small countries and territories in the South Pacific islands, such as Brunei and Timor Oriental in the proximity of Indonesia, and many others situated further into the Pacific. Those small countries of territories include islands and archipelagos such as Fiji, Kiribati, New Caledonia, Salomon Islands, Samoa, Tonga, Tuvalu Vanuatu, Micronesia, French Polynesia, Guam, the Marshall Islands, Palau and the Virgin Islands. Table 1 shows the estimation of real Gdp and the values of Population for all of the countries of Asia and South Pacific areas, including also the small countries and territories and others not included in the tables due to incomplete data. 11

Table 1.Gross Domestic Product and Population 1980-99: Asia-Pacific (Billions of dollars at 1999 prices and PPPs and millions of people) Area Gdp80 Gdp90 Gdp99 Pop80 Pop90 Pop99 1.Western Asia 504.4 551.2 718.8 53.3 75.0 102.4 2.South Central 326.1 433.7 666.9 137.3 186.7 223.2 3.India+South 940.5 1574.7 2670.5 804.5 996.0 1168.7 4.China and N.E 2901.6 5330.1 8895.0 1142.8 1308.0 1432.6 5.Indochina 250.8 432.4 740.4 179.3 219.6 245.0 6.South Pacific 778.9 1130.1 1725.3 236.4 287.7 340.9 Asia-Pacific 5702.3 9452.2 15416.9 2553.6 3073.0 3512.8 World 23831 32573 41961.0 4428.6 5262.0 5970.6 Source: Guisan and Exposito(2001). There were very important increases in real Gdp during the period 1980-99, more moderate in Western Asia, with an increase of 43%, followed by 105% in South Central Asia, 122% in the South Pacific, 184% in India and South, 195% in South East and 207% in China and North East. The general increase of Asia-Pacific real Gdp, in this period, was 170%. Population experienced an excessive growth in many areas, although we can see a diminution in the yearly rates during the period 1990-99 in comparison with 1980-90. The highest percentages of population increase during the period 1990-99 correspond to Western Asia with 92%, South Central Asia with 63% and India and South with 45%, while the lowest percentages of increase correspond to South Pacific with 44%, Indochina with 37% and the area of China and North East with 25%, The areas and countries with the highest rates of increase in real Gdp per inhabitant are those which experienced a greater difference between the rate of growth of real Gdp and the rate of growth of population, China and North East being the most prominent area in this regard. All the areas, with the sole exception of Western Asia, experienced rates of increase in real production higher than their rates of increase in population and thus experienced increases in total production per inhabitant during the period 1980-99. Tables 2 and 3 present the data for North East Asia, and we can see a variety of situations in the its countries. China, the most populated country in the world has experienced very high rates of economic development since 1980, and multiplied the real value of total production per inhabitant, during the period 1980-99, by a factor of nearly 5. This highly positive evolution occurred largely beyond the year 1987, thanks to the increase in the educational level of population, industrialization and economic policies introduced to foster production and trade. Japan was the most dynamic Asian economy during the second half of the 20th century, with a level of production per inhabitant in 1999 ranking among the top world positions, with 25,975 dollars. 12

Table 2. Gdph by sector in China, Japan and North East: Agriculture and Total (dollars at 1999 prices and PPPs) Agriculture Total Country 1980 1999 1980 1999 China 314 638 763 3753 Hong-Kong China 1 14 10563 22159 Japan 557 519 16359 25975 Korea South 627 812 4882 16235 Mongolia 526 511 1463 1597 Total Area 348 630 2539 6209 Asia-Pacific 430 629 2324 4389 World 462 591 5434 7031 Source: Guisan and Exposito(2003). Table 3. Gdph by sector in China, Japan and N.E.: Industry and Services (dollars per inhabitant at 1999 prices and PPPs) Industry Services Country 1980 1999 1980 1999 China 249 1876 201 1238 Hong-Kong China 2099 3324 8464 18835 Japan 6256 9611 9546 15845 Korea South 1644 7143 2610 8280 Mongolia 425 447 512 639 Total Area 917 2736 1273 2843 Asia-Pacific 761 1695 1133 2065 World 1732 2285 3240 4154 Source: Guisan and Exposito(2003) Table 4.Production per head in large areas of Asia-Pacific: Agriculture and Total (dollars at 1999 prices and PPPs) Area Ph80a Ph90a Ph99a Ph80t Ph90t Ph99t 1. Western Asia 610 641 541 9463 7350 7020 2. Central Asia 372 566 628 2375 2323 2988 3. India and South 489 534 628 1169 1581 2285 4.China and N. East 348 499 630 2539 4075 6209 5.Indochina 461 516 645 1399 1969 3022 6.South Pacific 592 637 645 3295 3928 5061 Total Asia-Pacific 430 532 629 2324 3076 4389 World 462 529 591 5434 6191 7031 Source: Own elaboration based on World Bank, and international statistics. 13

Table 5. Production per head in large areas of Asia-Pacific: Industry and Services (dollars at 1999 prices and PPPs) Area Ph80i Ph90i Ph99i Ph80s Ph90s Ph99s 1. Western Asia 4600 3101 2940 4252 3607 3538 2. Central Asia 1006 632 880 998 1126 1480 3. India and South 248 384 575 431 662 1082 4.China and N. East 917 1544 2736 1273 2032 2843 5.Indochina 310 558 999 628 895 1378 6.South Pacific 1091 1291 1819 2605 2000 2597 Total Asia-Pacific 761 1056 1695 1133 1487 2065 World 1732 1940 2285 3240 3721 4154 Source: Own elaboration based on World Bank and international statistics. During the period 1980-99, Asia-Pacific experienced an increase of 46% in real value of production per inhabitant in Agriculture, 123% in Industry, 82% in Services and 89% in Total, while the corresponding percentages of increase at World level where much lower: 28% in Agriculture, 32% in Industry, 28% in Services and 29% in Total. All the areas, with the exception of Western Asia, experienced a positive evolution during the period 1990-99, and several of them also during 1980-90. We can see that the countries and areas with the highest levels of production in industry usually have the highest levels of production in services, because both sectors have important interrelationships. In the next section we present data by countries and areas corresponding to the educational level of population and other variables which are very much related to economic development. Table 6. Exports of Goods and Services in large areas, Asia-Pacific 1990 1998 Area Goods Services Total Goods Services Total Western Asia 1341 218 1559 1149 277 1426 South Central 134 9 143 110 12 122 India+South 22 5 27 37 11 48 China+N.E. 380 57 437 617 101 718 Indochina 145 37 182 328 82 410 South-Pacific 585 121 705 1002 185 1187 Asia-Pacific 269 45 314 421 76 497 World 657 154 810 917 224 1141 14

Table 7. Exports of Goods in China, Japan and North East (dollars at current prices) Country 1990 1998 China 55 148 Hong-Kong China 14442 26012 Japan 2328 3073 Korea South 1517 2857 Mongolia 301 145 Total Area 4 380 617 Asia-Pacific 269 421 World 657 917 5.- Education, demography and development Here we analyse some data of Education Expenditure per inhabitant, Total Years of Education of adult population and Fertility rates in China and Asia-Pacific, based in Guisan and Exposito(2001) and (2003) and the international sources of data there cited. Eduh = Public expenditure on Education per inhabitant, in 1995 in dollars at that years prices and PPPs. Tyr99 = Total average years of schooling by adult in 1999. Fer00 = Fertility rates, average number of children expected by woman during her life, corresponding to population of year 2000. Table 8. Population, Education and Fertility in areas of Asia-Pacific Area Pop80 Pop90 Pop99 Eduh Tyr99 Fer00 Western Asia 53 75 102 245 4.6 5.3 South Central 137 187 223 128 3.3 4.7 India + South 804 996 1169 46 4.5 3.4 China + N.E. 1143 1308 1433 149 6.2 1.7 Indochina 179 220 245 99 4.7 2.8 South Pacific 236 288 341 157 6.0 2.8 Asia-Pacific 2554 3073 3513 112 5.3 2.7 World 4429 5262 5971 258 5.8 2.8 Source: Guisan and Exposito (2003) and international sources of data. Table 9. Population, Education and Fertility in China, and N. East Country Pop80 Pop90 Pop99 Eduh Tyr99 Fer00 China 981.2 1133.7 1249.7 48 5.7 1.8 H-K China 5.0 5.7 6.9 646 9.5 1.2 Japan 116.8 123.5 126.6 1003 9.7 1.4 Korea South 38.1 42.9 46.8 443 10.5 1.5 Mongolia 1.7 2.2 2.6 172 5.2 2.7 Total Area 4 1142.8 1308.0 1432.6 149 6.2 1.7 Asia-Pacific 2572 3097 3542 112 5.3 2.7 World 4429 5262 5971 258 5.8 2.8 Source: Guisan and Exposito (2003) and international sources of data. 15

Total Years of Education in China, India and 3 OECD countries. 14 12 10 8 6 USA Es Jp 4 2 Cn In 0 60 65 70 75 80 85 90 95 00 In Guisan, Aguayo and Expositio(2001) we show that an increase in the variable TYR of 2 unities imply a decrease in the fertility rate for countries with educational levels between 2 and 8 years of education per adult. This has a very positive effect on the increase of real Gdp per inhabitant because the moderation of demographic rates. Besides education has other very important positive effects on productivity, and so according to several authors cited in the bibliography we want to express our support for the increase of the educational level of population in China, India and all the other developing countries, because it is the main priority for their development. Besides that the increase in foreign trade and industrial production are also an important priority for China and other developing countries. Bibliography Barro, R. and Lee, J.W.(1996). International Measures of Schooling Years and Schooling Quality. American Economic Review, Papers and Proceedings, nº. 86, May, pp.218-223. Barro, R. and Lee, J.W.(2000). International Data on Educational Attainment: Updates and Implications. Working Paper nº.42 of the series Centre for International Development at Harvard University. 1 Bloom, D.; Canning, D. and Malaney, P. (1999). Demographic Change and Economic Growth in Asia. Working Paper nº 15. Center for International Development at Harvard University. Cao, G-Y. (2000). The future population of China: Prospects to 2045 by Place of Residence and by level of Education. Working Paper of International Institute for Applied Systems Analysis, Austria. 16

Chow, G.C. (2001). Econometrics and Economic Policy. China Statistic. Crespo, J.; Martín, C. and Velazquez, F.J. (2002). International technology difusión through imports and its impact on economic growth. Working paper of the European Economy Group, nº 12. Datt, G. y Ravallion, M.(1996). Why have some Indian States done better than others at reducing rural poverty?. Working Paper of the World Bank. nº 1594. 3 Dees, S. (1999). The Role of External Variables in the Chinese Economy. CEPII, document de travail, nº 99-09. Fukuda, S. and Toya, H. ( ). The Role of Human Capital Accumulation for Economic Growth in East Asian Countries. Discussion Paper Series, nº 286, Institute of Economic Research, Hitotsubashi University. Guisan, M.C., Aguayo, E., and Exposito, P.(2001). Economic Growth and Cycles: Cross-country Models of Education, Industry and Fertility and International Comparisons. Applied Econometrics and International Development, Vol.1-1, June 2001, pp. 9-37. 2,3 Guisan, M.C. and Exposito, P.(2001). Economic Growth of African and Asia-Pacific Areas in 1951-99. Applied Econometrics and International Development, Vol.1-2, December 2001, pp. 101-125. 2, Guisan, M.C. and Cancelo, M.T.(2002). Econometric Models of Foreign Trade in OECD Countries. Applied Econometrics and International Development, Vol.2-2, December 2002, pp. 65-81. 2,3 Guisan, M.C. and Exposito, P. (2003). Education, Industry, Trade and Development in Asia-Pacific countries in 1980-99. Applied Econometrics and International Development, Vol.3-2, July-Setember 2003, pp 117-142. Guisan, M.C. and Martinez, C. (2003). Education, Industrial Development and Foreign Trade in Argentina: Econometric Models and International Comparisons. Working Paper Series Economic Develompemt, nº 67. Guisán, M.C. and Expósito, P. (2004). Education, Industry, Trade and Development of Asia- Pacific Countries. Chapter 7 of the book Human Capital and International Development, forthcoming. 2 Guisan, M.C. and Exposito, P.(2004). Employment and real income of agriculture in India, China and OECD countries: econometric models and evolution 1950-2000. ICFAI Journal of Applied Economics, Hyderabad, forthcoming. Karras, G.(2003). Trade Openness and Economic Growth. Can We Estimate the Precise Effect?. Applied Econometrics and International Development, Vol.3-2, September 2003, pp. 7-26. 2,3 Klein, L. and Ichimura, S. (2000). Econometric Modeling of China. World Scientific Publishing Corporation (www.wspc.com). Klein, L. (2004). China and India: two giants. Applied Econometrics and International Development, Vol.4-1, Janury-Mars 2004, forthcoming. Lai, H.H. (1997). Factor Endowments, Trade Direction, and Growth Perfomances of the Americas and East Asia in the Nineteenth and Twentieth Centuries. Serie Development and Comp Systems, WUSTL, nº 9710004. 17

Maddison, A.(2001). The World Economy. A Millennial Perspective. OECD Development Centre. OECD, Paris. OECD (2000). China in the Global Economy. National Accounts for China, Sources and Methods. Annex Statistics. OECD Centre for Cooperation with non member CCNM. Ruoen, R. and Kai, Ch. (1995). China s GDP in U.S. Dollars Based on Purchaising Power Parity. Working Paper nº 1415 of the World Bank. SSBC (1997). The Historical National Accounts of the People s Republic of China, 1952-95. SSBC- Hitotsubashi University, Japan. Wang, Y. and Yao, Y. (2001). Sources of China s Economic Growth, 1952-99: Incorporating Human Capital Accumulation. Working Paper of the World Bank. World Bank(2001). World Development Indicators. Washington. 1 http://www2.cid.harvard.edu/ciddata 2 http://www.usc.es/economet/eaa.htm 3 http://ideas.repec.org 18